Fundamentals of Financial Accounting 4th Edition by Fred Phillips,Robert Libby,Patricia Libby

Exercise 82

Sales Transactions between Wholesale and Retail Merchandisers, with Sales Allowances and Sales Discounts Using a Perpetual Inventory System
The transactions listed below are typical of those involving Amalgamated Textiles and American Fashions. Amalgamated is a wholesale merchandiser and American Fashions is a retail merchandiser. Assume all sales of merchandise from Amalgamated to American Fashions are made with terms 2/10, n/30, and that the two companies use perpetual inventory systems. Assume the following transactions between the two companies occurred in the order listed during the year ended December 31, 2013.
a. Amalgamated sold merchandise to American Fashions at a selling price of $230,000. The merchandise had cost Amalgamated $175,000.
b. Two days later, American Fashions complained to Amalgamated that some of the merchandise differed from what American Fashions had ordered. Amalgamated agreed to give an allowance of $5,000 to American Fashions.
c. Just three days later, American Fashions paid Amalgamated, which settled all amounts owed.
Required :
1. For each of the events (a) through (c), indicate the amount and direction of the effect (+ for increase, for decrease, and NE for no effect) on Amalgamated Textiles in terms of the following items.

2. Which of the above items are likely to be reported on Amalgamated's external financial statements, and which items will be combined "behind the scenes"
3. Prepare the journal entries that Amalgamated Textiles would record, and show any computations.
TIP : When using a perpetual inventory system, the seller always makes two journal entries when goods are sold.